Pros and Cons of Student Property Investments

Pros and Cons of Student Property Investments

Looking for short-term, regular returns? Student property investment is your answer. The student property market is massively growing, and one of the most popular alternative investment options. Investors have been benefiting from directing their capital into accommodation for students across the UK and here’s why.

 

Market Overview

The student property market is considered to be the best performing asset since 2011, attracting the second highest investment volume in the UK in 2016, with a total of £4.5 billion invested. Student accommodation has proven to have a growing demand over the years with the increase in the number of students attending university in the UK, as well as the universities’ inability to maintain a supply to match this fast growing demand. For example, in the previous academic year, 2017/2018, there were 602,000 new spaces created for students with 87% of those funded by private investment. With this, there are currently 2.4 million full-time students attending university, and a projected increase to 17.4 million undergraduate students  by 2027. International students make up 19% of the student population within the UK, a number that has increased by 70% over the last 10 years. This means that not only are home students looking for accommodation, but the rise in demand is attributable to the increase of international students who wouldn’t necessarily already have accommodation in the UK prior to starting universities.

 

The Benefits?

As conveyed by the figures above, high demand and lack of supply in this market is one of the biggest benefits. Universities simply cannot accommodate each student that enrols, and especially with the rate at which the student population is growing. Therefore, private investors have been significantly benefitting from this gap in the market and are providing the properties to meet the demand. With that said, tenant acquisition is relatively easier than renting out to professionals as most universities help their students find accommodation, therefore almost assuring tenants to occupy your property. Furthermore, the demand for student property is constant as students continue to study at universities regardless of economic climates, thus deeming this type of investment recession-safe.

Student accommodation investments are a high yielding investment, of 7%-9% per annum. The returns are also short-term, making this a suitable investment for investors that are looking to make quick, low-risk returns whilst simultaneously diversify their investment portfolio. Also, student property tend to produce higher rental yields in comparison to renting property to professionals, as well as rent being assured. The reason rent is essentially assured with this type of alternative investment is due to the guarantor scheme that students must engage with. The guarantor scheme requires tenants to list an individual that will legally hold financial responsibility for the tenant’s rent in circumstances where rent is not paid. Therefore, if the student does not pay their rent or does not pay on time, given the guarantor scheme the investor will still receive their returns regardless.

In continuation, investment in student property adopts the benefit of the low-cost/low-risk characteristic. The reason for this is that student property is usually located in areas that are cheaper to buy into, such as inner city locations. Not only is the low cost a benefit from this, but also the fact that property appreciation is heightened.

 

The Risks

Although there are many benefits to investing in student property as an alternative investment opportunity, there are also certain things that must be considered when investing. For instance, renting out to students means that there is a higher possibility of wear and tear, due to the nature of the student lifestyle. In consequence, careful and close management of the property is more necessary than traditional buy-to-let. In regards to returns, although investors do benefit from student property being classified as HMO property, additional set-up, planning consent and licensing considerations could be required to fulfil the classification.

Additionally, it may be more difficult for property owners to conduct credit checks or retrieve references for the students. However, this is not a significantly relevant risk in all scenarios as the guarantor scheme compensates this issue. Lastly, void periods can be considered another risk given that students will technically only need the property during term-time (September to May). However, again, there is a way to compensate on this by obligating student to cover the 2 months rent in summer as a means to secure their property. Most student property landlords tend to make students contractually obligated to pay half or the full rent for the 2 month summer period.

Resale value is an important consideration as well as the termination of your assured returns. When reselling your student unit, it can only be sold to an investor with no assurance of capital growth. Whereas care homes have an assured buy-back paying capital uplift to the investor, giving them extra security and growth on exit. When it comes to rental assurances once assured period concludes (usually 3 years) on the student let the investor is liable for the running costs, such as; management fees, service charges and upkeep of property. Compare this to care homes, your assurance is up to 20 years and pays higher returns with no additional costs throughout this period.

Finally, although student property is seen as a recession-safe investment it isn’t completely recession-proof. Recent figures have shown that home students especially are considering alternative types of education such as colleges and apprenticeships as a response to the economic climate. One may argue that care home investments are more recession-proof than student property. This is for two main reasons; the first being the nature and length of the occupancy and the type of funding. Most of UK care home residents are funded by the government making it a safer option when compared to personal funds that would sponsor a student’s accommodation.

 

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There are a number of alternative buy to let properties, HyLife specialise in sourcing the safest, most ethical opportunities that attract the best returns for our investors.

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